Beijing orders banks to relax bad debt ratio for loans made to small companies
- Banks can loosen NPL ratio tolerance for small companies by 3 percentage points, China’s top banking regulator says
- Move seen as helping to shore up private sector, a generator of 80 per cent of jobs in urban areas
China’s top banking regulator has ordered commercial banks to relax their tolerance over non-performing loans (NPLs) owed by small companies, reflecting the latest move by Beijing to support private companies amid the deepening economic slow down.
Commercial banks can loosen the NPL ratio tolerance for “inclusive small companies” by 3 percentage points, according to a guideline published by the China Banking and Insurance Regulatory Commission (CBIRC) on its official website on Wednesday.
The relaxation will apply to companies with credit lines from banks under 10 million yuan (US$1.5 million).
Analysts said it was rare for the nation’s top banking regulator to become directly involved in issuing directives to local banks.
“Previously, local banking regulators will give guidance to banks when the government wants to boost credit, while the rise in NPL tolerance is usually capped by 2 percentage points. This time it is the top regulator making a written requirement,” said Chen Shujin, chief financial analyst at Huatai Financial Holdings in Hong Kong.
At the end of 2018, the NPL ratio of commercial banks stood at 1.83 per cent, 0.04 percentage points lower than the end of September.
The guideline also emphasised new lending targets issued by Premier Li Keqiang earlier this month.
That could inject as much as 1.8 trillion yuan (US$230 billion) worth of fresh capital into small companies.
China has focused on boosting investment in private companies, especially smaller ones, in a bid to ward off economic malaise.
Private companies make up 50 per cent of tax revenue and 80 per cent of jobs in urban areas, said Liu He, China’s chief trade negotiator last year.
The rating agency said a large number of distressed loans were related to manufacturing, real estate, and retail, all cyclical sectors that are suffering amid the slowing economy.
However, risk control has been improved for banks, as regulators have enforced a tighter standard for NPL recognition, and imposed stricter capital adequacy ratio requirement, he said.
By the end of 2018, outstanding loans to small enterprises was 33.49 trillion yuan, accounting for 23.8 per cent of total lending. About 9.36 trillion yuan in lending was directed to “inclusive small enterprises”, the CBIRC figure shows.
